Intel Could Kill This Business Unit Thanks to the Nvidia Deal

Part of Intel's (INTC -2.82%) turnaround strategy, now under CEO Lip-Bu Tan and previously under former CEO Pat Gelsinger, is to exit noncore businesses and refocus on what the company does best. Intel has exited the memory chip business, wound down its Ethernet switch business, abandoned its Bitcoin mining chips, and scuttled a wide variety of smaller business lines. It has also spun off its self-driving unit Mobileye and sold a majority stake in Altera, raising cash in both cases. Intel likely isn't done simplifying its operations. Tan has initiated significant layoffs, and a new policy of "no more blank checks" will lead to the company being far more selective about which investments it chooses to make. Anything outside of PC central processing units (CPUs), server CPUs, and manufacturing could very well get the axe, and even the manufacturing business isn't safe if it can't secure external customers. Last week, Intel signed an unexpected deal with rival Nvidia to produce custom PC and data center CPUs that include Nvidia technology. In the PC business, this means that Intel CPUs with integrated Nvidia graphics processing units (GPUs) are on their way. The big question: What does this mean for Intel's own graphics business? Image source: Getty Images. An unclear future Intel sells CPUs with its own integrated graphics technology, and it also broke into the discrete graphics card market a few years ago with its Arc line of GPUs. The first generation of Intel's Arc GPUs was plagued with software issues, while the second generation has garnered positive reviews. Intel focused on the mid-range portion of the market, offering a compelling alternative to Nvidia and AMD graphics cards. Unfortunately for Intel, it hasn't gained any meaningful share of the discrete graphics card market. In the first quarter, Intel's GPU unit share rounded down to 0%, according to Jon Peddie Research. Nvidia dominates the market, and PC gamers may still be reluctant to try an Intel GPU due to the history of software issues. The deal with Nvidia doesn't cover discrete graphics cards, but partnering with a competitor raises questions about how serious Intel is about staying in the discrete graphics card market. It also raises questions about whether it will continue to invest in its own graphics technology for its CPUs. Once CPUs with Nvidia graphics start shipping, it's unclear whether Intel will continue to invest in its in-house graphics. An Intel CPU with Nvidia graphics should be an appealing product, but it could reduce demand for Intel's non-Nvidia CPUs. Intel could also end up scrapping its discrete graphics card business, given that its main competitor is now a partner. Not without risks The deal with Nvidia makes a lot of sense for Intel. The company has lost considerable PC CPU market share to AMD, so upping its graphics performance with Nvidia's GPUs should help Intel strengthen its position, particularly in the laptop market. If Intel ends up pulling back on its own graphics technology, that move would reduce costs at the expense of the company becoming dependent on Nvidia, which is buying a $5 billion stake in Intel as part of the deal, so this appears to be a long-term arrangement. Even so, outsourcing graphics entirely could come back to bite Intel down the road. Despite the deal with Nvidia, Intel may choose to keep plugging away in discrete graphics cards and to keep developing its own graphics technology. But with the company eyeing noncore businesses to dump, graphics could very well be next.